Staff Report, Federal Reserve Bank of New York 739
Despite a robust college premium, college attendance rates in the United States have remained stagnant and exhibit a substantial socioeconomic gradient. We focus on information gaps - specifically, incomplete information about college benefits and costs - as a potential explanation for these patterns. For this purpose, we conduct an information experiment about college returns and costs embedded within a representative survey of U.S. household heads. We show that, at the baseline, perceptions of college costs and benefits are severely and systematically biased: 75 percent of our respondents underestimate college returns (defined as the average earnings of a college graduate relative to a non-college worker in the population), while 61 percent report net public college costs that exceed actual net costs. There is also substantial heterogeneity in beliefs, with evidence of larger biases among lower-income and non-college households. We also elicit respondents' intended likelihood of their pre-college-age children attending college, and the likelihood of respondents recommending college for a friend's child, the two main behavioral outcomes of interest. Respondents are then randomly exposed to one of two information treatments, which respectively provide objective information about "college returns" and "college costs". We find a significant impact on intended college attendance for individuals in the returns experiment: intended college attendance expectations increase by about 0.2 of the standard deviation in the baseline likelihood. Importantly, as a result of the college returns information intervention, gaps in intended college attendance by household income or parents' education persist but decline by 20 to 30 percent. Notably, the effect of information persists in the mediumterm, two months after the intervention. We find, however, no impact of the cost information treatment on college attendance expectations.
college enrollment college returns and costs information subjective expectations